Tricare physician payments at center of contract dispute

Government research shows that low payment levels for treating Tricare enrollees contributes to the lack of access to civilian physicians and hospitals for those patients. But the agency running Tricare could be making the problem worse by demanding that private insurance company contractors guarantee discounts on care from civilian doctors and hospitals.

Tricare is the government's health care coverage for active and retired military personnel and their families. As of June, 9.7 million eligible service members and family members were covered by Tricare.

A report by the Government Accountability Office released in June noted that, since Tricare's inception in 1995, enrollees have said they have had trouble finding civilian physicians who accept Tricare. The problem has worsened since veterans coming home from Iraq and Afghanistan have heightened the demand for care.

The problem is acknowledged even at the highest levels. For example, during a May 12 town hall meeting at Camp Lejeuene, N.C., Robert Gates, then U.S. defense secretary, said there is "room for improvement" in Tricare.

"It's not the quality of the medical care that's at issue. It's the bureaucracy and the availability of physicians and waiting times and things like that," he said.

Tricare allows enrollees to seek care both from military and civilian physicians. The Dept. of Defense's Tricare Management Activity contracts with private insurers. Currently, those are Humana, Health Net and a group of Blues plans called the TriWest Healthcare Alliance. Each contractor is assigned to one region -- South, North and West, respectively -- where it maintains a network of civilian physicians and hospitals.

Civilian physicians who care for Tricare enrollees are supposed to be paid according to the Medicare fee schedule, with a few exceptions where there is a documented physician shortage in a certain geographic area.

In reality, Tricare pay does not always equal Medicare pay. Contracted insurers negotiate discounts below the Medicare fee schedule. The GAO report said that among physicians surveyed in 2008 and 2009 who did not accept Tricare patients, the low rate of payment for care was one of the primary reasons -- even for physicians who accept Medicare patients.

Access to care an ongoing problem

These network discounts promised by Tricare contractors have become central in the contentious contract award process for Tricare's so-called third-generation or T-3 contracts.

When the Tricare Management Activity first awarded T-3 contracts in July 2009, Humana, which was running benefits in the South region under an existing contract, lost out to UnitedHealth Group's Military and Veterans Services subsidiary.

With an estimated $25.3 billion at stake, Humana appealed to the GAO. After reviewing competing bids and the means by which the TMA chose between Humana and United, the GAO found that the agency didn't give Humana enough credit for promised network discounts.

"The potential health care cost savings likely to be available to the government from application of Humana's network provider discounts from network providers ... were likely to be significant," the GAO said.

The GAO noted that Humana reported it already had achieved an average network discount below the Medicare fee schedule by a certain percentage and guaranteed a specific savings for the government for the next five-year contract period. But the exact promised dollar amount and discount percentage were redacted from the public version of the document.

It's unclear, then, how much lower its payments are to Tricare network physicians in the South region compared with Medicare.

Humana declined to answer questions about the contract or its payment policies, citing ongoing disputes over the deal. The TMA also declined to discuss the contract award decision or physician payment.

According to United, the TMA took the opportunity to amend its request to bidders by specifying that it wanted guaranteed network discounts built into bids, with penalties if those average discounts are not met.

When Humana won its appeal and the T-3 South region contract, United went on the offensive, launching a website critical of the government's focus on network discounts.

"We've been concerned that if rates become too low, it could cause access problems," said Lori McDougal, CEO of UnitedHealth Group's Military and Veterans Services. "In the past, contractors' incentive to try to get discounts had to be balanced against access and quality standards. These guarantees are locked in."

So far, however, United's concern hasn't been joined by any organized complaints from Tricare beneficiaries.

Capt. Kathy Beasley, deputy government relations director at the Military Officers Assn. of America, said the group closely monitors Tricare beneficiaries' access to care, particularly in light of the thousands of veterans returning home from Iraq and Afghanistan who need mental health care.

"There's been an issue of access for a long time," she said. "Any time you're talking about reducing payment rates, I would immediately think of the network and how strong that is."

United appealed the government's reversal of the original South region contract award but lost the appeal in a June 14 decision by the GAO. United announced June 21 that it was suing the Defense Dept. over the government's handling of the South region bid award process. The suit is pending in federal court.

United also has challenged the award of the West region contract to TriWest. The TMA is re-evaluating bids from United and TriWest in response to the appeal.